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Thursday, October 3, 2013

Managing Distribution Networks


A distribution channel can be defined as, “an organized network (system) of agencies and insti­tutions which, in combination, perform all the functions required to link produc­ers with end customers to accomplish the marketing task” (American Marketing Association, 2013).  The definition takes into account numerous contributors to the overall success of moving products into customers hands.

Distribution channels are an important component of a successful business and marketing campaigns. Where demand is created the product must eventually be delivered. Even online businesses are not immune to taking the order and then delivering the products to the purchaser. For small batch production the use of existing distribution channels may be best (i.e. Fed Ex or UPS) but when large quantities of products are sold a much larger systems may need to be developed (i.e. Wal-Mart’s Commercial Truck Fleet).

Each distribution system should be evaluated for its ability to provide timely delivery, affordable cost, and support. Cost in distribution is important for creating strong networks that move products in a way that raises customer satisfaction and ensures the sustainability of the business. Some companies can create competitive advantages through lowering their distribution costs and continually improving on their strategies.

One way to do this is through the use of technology. New technology can improve production, risk and stock control benefits (Christi Midori Oship Nemoto, et. al., 2012). Some companies may implement scanning, integration systems, shared distribution with similar products, or even purchasing the distribution network itself. The costs and benefits are balanced and weighed against the needs of the company.  

Most distribution networks have at least one warehouse hub and many different regional distributors. Vehicles are routed in a way that limits travel and inventory costs while still maintaining the needs of the company (Bolduc, et. al. 2006).  Depending on the size of the company the hubs could spread throughout a region, country, or internationally. 

When distribution networks become global the parent company may need to work with multiple vendors within different markets to achieve their goals. For example, beverage companies may use local bottlers to distribute the products throughout their local market. Understanding how each vendor works together and what the best strategy is requires considerable research.

Whether one is in India buying an American made product or in the U.S. buying a Chinese product, it is beneficial to understand how the distribution process works. As products make their way from one location to the next, business leaders will need to understand how this process can make or break a company. Shaving a few percentages off of the cost in a large network can result in millions if not billions of saved dollars. The distribution strategy is part of the larger corporate strategy and cannot be parted. 
American Marketing Association (2013). Retrieved October 3rd, 2013 from http://www.marketingpower.com/_layouts/dictionary.aspx?dLetter=C#channel+of+distribution

Bolduc, M., et. al. (2006). Synchronized routing of seasonal products through a production/distribution network. Central European Journal of Operations Research, 14 (2). 

Christi Midori Oship Nemoto, M., et. al. (2012). Implementation of radio frequency identification technology in multinational companies: a Brazilian case study. International Journal of Management, 29 (4).

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